The Ministry of Finance will tighten corporate bond issuance as the market was seeing overheating development (Photo: baodauthau.vn)Hanoi (VNS/VNA) - TheMinistry of Finance will tighten regulations over corporate bond issuancebecause of an overheating market to protect investors and prevent risks whichmight arise from the abuse of this capital raising channel.
The ministry has made public adraft decree to amend several points of Decree 163/2018/ND-CP aboutcorporate bond issuance for comments, which included amendments of conditionsfor corporate bond issuance, rates, issuance approach in domestic andinternational markets, information disclosure and reporting mechanism.
It was pressing to tighten themanagement as the market has seen rapid growth since banking credit for severalsectors were narrowed, forcing firms to shift to bond issuance to raisecapitals.
The corporate bond market hasbeen overheating development in recent years.
Statistics of the Hanoi StockExchange showed that 211 firms issued bonds worth totally 280 trillion VND (12.1billion USD) in 2019, representing a rise of 25 percent compared to 2018.
The scale of the Vietnam’scorporate bond market expanded from 9.01 percent of the country’s grossdomestic product (GDP) in 2018 to 11.3 percent GDP in 2019 with a total ofnearly 670 trillion VND (28.8 billion USD) worth of corporate bonds incirculation.
The ministry said overheatingimplied significant risks as a number of firms did not clarify the purposes ofthe capital raised from bond issuance, repayment plans and bond yields.
Some enterprises even offerhigh yields which would negatively affect the rates of the overall market, theministry said.
The ministry at the beginningof the last quarter of 2019 sent out warnings to bond investors, urging them tostudy carefully information about the issuer companies, issuance purposes,mortgage asset, payment commitment, bond yield and the financial situation ofthe companies.
Under the draft, regulationsabout bond yields and bond transactions would be tightened.
Accordingly, bond yields wouldnot be allowed to be higher than 20 percent per year.
This aimed to prevent firmsfrom offering high bond yields which would negatively affect the capitalmarket.
In addition, bonds issued inthe domestic market would be restricted from trading among less than 100investors while under the current regulation, the restriction was applied onlyin the first year. This aimed to protect bond investors, the ministry said.
Two issuances must be at leastsix months apart, according to the draft.
Notably, issuer companies mustensure the outstanding value of bond issued would not exceed three times oftheir charter capitals. The Ministry of Finance said that this regulation wouldhelp prevent firms from issuing bonds in too large a volume and value whichwould bring risks to both issuers and investors.
The Hanoi Stock Exchange’sstatistics showed between January and November 2019, 28 out of 177 firms issuedbonds worth three times higher than their charter capitals. Among them, 11 hadbond issuance more than 50 times higher than their charter capitals and six hadbond issuance more than 100 times higher.
The ministry said some did notclarify their purposes of bond issuance and how they could repay the bonds.
The draft asked bond issuercompanies to state in detail how the capital raised from bond issuance to be used./.
VNA
